The big news from today

Via Felix Salmon, it appears Cyprus is going to default. However small a country it may be, does anyone at this point want to be on record setting any number of precedents, one way or the other?

Felix asks:

So even if Europe has made its first big decision — to force Cyprus to default — it still faces many more. Should it amend the ESM treaty to make any restructuring easier? Should it impose a haircut on Cyprus’s uninsured depositors? And how can it structure the process to minimize the chances of a messy bank run, default, and possibly even exit from the euro? It’s easy to dismiss Cyprus as too small to worry about. But it’s still an important sovereign state. And if the EU missteps on Cyprus, that would bode very ill for any similar problems in bigger eurozone countries in the future.

“Creative ambiguity” is getting harder to manage all the time. What would a depositor haircut here imply for Greek and Spanish banks?

‘Cyprus is tiny, and could never afford the €17 billion needed to bail out the banks and the government — especially since that would bring the country’s debt load up to more than 140% of GDP.’

We are talking about 17 billion euros here? 17 billion?

Of apparently written off Greek debt? So the people that bought Cypriot debt based on Greek debt are going to take a haircut? Or not, because they were clever to ensure that the terms were to their favor, unlike the Greek situation?

How about everybody else holding on to that Cypriot debt? Just peachy keen, are they? Or maybe 17 billion just isn’t that large amount anymore, even when held by a government.

And that European officals are mealy mouthed weasels – (yeah, that doesn’t really work – weasels are anything but mealy mouthed) is that news now?

‘It’s easy to dismiss Cyprus as too small to worry about. But it’s still an important sovereign state.’

Well, for dodgy banking in the MENA + former Soviet Bloc, and a convenient way for certain people to keep their money out of coffers it probably should be flowing into – oil money and arms dealing coming immediately to mind, along with more than a soupcon of drug and kickback/bribery money in the mix.

Somehow, I think this will be much bigger news in the U.S. than in the EU/eurozone – Cyprus is just a chip in the Greek/Turkish game, after all – and Turkey still holds onto its part, amounting to about a third of the island. Which, I’m reasonably certain, holds no Greek government debt in its portfolio.

The original WSJ article (see the links in Salmon’s article) does NOT mention default, just a bailout: ” A flap over a potential bailout for Cyprus is heightening anxieties that the tiny island’s economy could become the next flash point in the euro zone’s debt crisis. ” TC are you shouting fire in a crowded theatre?

Greece did default. Unfortunately (in my view) it was a fudged default, softened by moving Greek debt into the hands of cooperative creditors who would finance their own payments, re-arranging payment terms while maintaining face values, etc.

Here’s hoping that the EU will see Cyprus as small enough to be used as a test case for a hard default, as in “Announcement: we will simply not re-pay this debt. End of announcement.”

(In other often conveniently misremembered history, the US auto manufacters did in fact go bankrupt. (http://en.wikipedia.org/wiki/General_Motors_bankruptcy). The US government intervention just ensured that its political clients got better terms out of the bankruptcy than they would have otherwise.)

That was a powerful rebuttal to the Great Stagnation thesis by R. Roberts. “And sure, indoor plumbing is lovely. I’m a big fan. But it doesn’t explain growth.” = nor does it explain why Japan is a worse place to live for anybody except the Japanese despite the fact they have the most sophisticated toilets in the world (called “bidets”).

The question to ask is: is there a bank that will go under as a result, and, if so is that bank significant to the European banking network such that the effect of its collapse will cause other European banks to go under.

Sovereign default was not un-common prior to WWII. That the return on government bonds being defined as the risk-free rate of return is the criminal fraud that has been taught in business school since the 1960’s. Anyone with a passing knowledge of science would immediately recognize this as a blatant case of selection bias.

This is great news for anyone who hates Russian oligarchs and loves freedom. Cyprus is the destination for scumbag Russians to launder their money and then re-insert it back into the EU system. Now all we need is for London to go down and money laundering by Russian criminals will slow to a trickle.

Dear American people who treat financial problems of small countries the same way you treat NFL news,

…please get your facts straight.

Rehn never said Cyprus was going to default. WSJ put a twist to the story implying that the required reduction in debt that Rehn talked about equals debt restructuring. Of course if you had a clue about facts you would know he was talking about privatisation’s in particular.

Then Salmon with his low IQ reported a debt restructuring as a fact…and MR seems to continue the trend.